SINGAPORE (March 23): DBS Vickers Securities is positive on Vibrant Group’s recent asset sale transaction, but thinks the logistics firm still lacks the cash to perform the redemption of its upcoming bond maturities.
To recap, a consortium led by GSH Corporation last month agreed to divest its 51% owned GSH Plaza to Hong Kong-listed developer Fullshare Holdings for $725.2 million, from which Vibrant should have received net proceeds of about $87.4 million as the group’s investment vehicle, Vibrant DB2, owned a 35% interest in the building.
(See also: GSH-led consortium to divest GSH Plaza for $725.2 mil)
Vibrant intends to use the net proceeds for the repayment of debt and bank borrowings.
In a Thursday unrated report, analysts Teo Cui Fang and Simon Jong point out that Vibrant’s debt maturity profile would still remain concentrated with about 70% or about $226 million debt being short-term, even after factoring the potential debt repayment of $87.4 million.
“This also factored both maturity/first call date of the bond and the perpetual respectively. We think Vibrant will have to resort to more asset sales and bank refinancing to fund its debt maturities and will be focused on updates from the company regarding this,” say the analysts.
“Based on our forecasts and assuming a substantial portion of existing short term bank debt to be refinanced, we expect Vibrant to generate cash to cover more than half of its upcoming bond maturities, with the residual could be refinanced,” say Teo and Jong.
“Apart from the straight bond and despite the disincentives of keeping the perpetual outstanding once it becomes callable, we think the company still lacks cash required to perform the redemption.”
Although they believe the sale of GSH Plaza is encouraging in this aspect, the analysts emphasise that “more needs to be done”, such as making greater headway in asset divestments or accelerating project completions.
For instance, Vibrant’s 9MFY17 revenues improved primarily from its real estate segment, and operating cash flow recently turned positive due to progress billing for its second government build and transfer housing project (Second Jiangyin Project) which is scheduled to complete by 2Q17.
Teo and Jong believe cash unlocked from this project upon its completion, or increased progress billing, would further spur the group towards its goal.
“We are watchful for such developments in 4QFY17, and will monitor for more signs of deleveraging,” conclude the analysts.
As at 3.28pm, shares of Vibrant are trading 1.4% lower at 36 cents while GSH Corp is up 0.9% at 56 cents.
